Collateral contract
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A collateral contract is a contract where the consideration is the entry into another contract, and co-exists side by side with the main contract. For example, a collateral contract is formed when one party pays the other party a certain sum for entry into another contract. A collateral contract may be between one of the parties and a third party.
A party to an existing contract may attempt to show that a collateral contract exists if their claim for a breach of contract fails because the statement they relied upon was not held to be a term of the main contract. It has been held that for this to be successful, the statement must have been promissory in nature (J J Savage & Sons Pty Ltd v. Blakney (1970) 119 CLR 435).
A collateral contract, if forged between the same parties as the main contract, must not contradict the main contract (Hoyt's Pty Ltd v. Spencer (1919) 27 CLR 133).
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Collaterial contracts are created by spoken or written promises that induce a party to enter a contract missing that promise.
